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Outside the Box
Oct. 16, 2010, 12:01 a.m. EDT
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The final end of Bretton Woods 2
First Take "º
GE gets no respect
By Howard Gold
NEW YORK (MarketWatch) "” Just when you think you've got the stock market figured out, it throws you a curve.
September is supposed to be the single worst month for stocks, and yet this year stocks posted their best performance in that benighted month in seven decades.
And October, the time of ghosts, goblins and stock market crashes, has continued September's brisk advance.
Halfway through the month, the Standard & Poor's 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,176, +2.38, +0.20%) has risen almost 4%, closing Wednesday strongly at 1,178.10. From their recent lows in late August, stocks have rallied 13%.
And now, as we enter not only the best season for stocks in the calendar year, but also the very best three quarters in the four-year election cycle, you'd think you should just sit back and enjoy the ride, right?
But I'm worried the market may be getting ready to throw us a screwball.
Three big forces behind the recent rise "” earnings season, the midterm elections, and the Federal Reserve's moves to print more money "” may come together by early November to drive stocks to a near-term peak, and some profit-taking could follow.
And though I remain cautiously optimistic for the months beyond, we could be in for some nasty bumps in coming weeks.
Why? Because a lot of good news is factored into stock prices already.
First, corporate earnings. Intel Corp. /quotes/comstock/15*!intc/quotes/nls/intc (INTC 19.32, 0.00, 0.00%) reported stronger than expected third-quarter chip sales, driving technology and other stocks higher (although Intel itself was down). And J.P. Morgan Chase & Co. /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 37.15, -1.57, -4.05%) also beat analysts' estimates, as it set aside less money to absorb losses from bad loans. Read commentary about J.P. Morgan results. Read commentary about Intel's results.
Good earnings from corporate America were one of the three reasons I gave to be at least a little bullish back in early August. Employment stinks and small businesses are struggling, but multinational corporate America is in great shape "” flush with cash and selling like crazy overseas. Read Howard Gold's analysis of the reasons stocks could rise on MoneyShow.com.
The good news from the big blue-chip names will be rolling across the ticker over the next couple of weeks, but by the first week in November earnings season will be pretty much done.
That same week, of course, we'll finally know the results of the mid-term elections.
Everyone except House Speaker Nancy Pelosi expects the Democrats to take a shellacking amid voter anger about the economy and huge budget deficits. Watch the video of Steve Forbes predicting a big Republican sweep on MoneyShow.com.
Right now, the highly regarded prediction market intrade.com is giving Republicans an 87% chance of regaining control of the House of Representatives and a 74% chance of capturing at least 50 seats. Intrade also says that Democrats will barely maintain control of the Senate.
That prescription for gridlock and a sharp division of power between both sides of Pennsylvania Avenue is just what investors love, as it will likely mean few high-tax, big-government initiatives over the next two years.
Good news selloff shows GE skeptics still abound, writes Jim Jelter.
3:25 p.m. Oct. 15, 2010 | Comments: 17
- SolutionOriented | 12:08 a.m. Today12:08 a.m. Oct. 16, 2010
"Dow ends in the red Friday; Nasdaq paces major indexes' weekly gains, up roughly 3% http://on.mktw.net/bVeKvk" 3:06 p.m. EDT, Oct. 15, 2010 from MarketWatch
"Former Countrywide CEO Mozilo settles with SEC: reports http://on.mktw.net/cpjgsf" 1:30 p.m. EDT, Oct. 15, 2010 from MarketWatch
"Consumer sentiment edges lower in October http://on.mktw.net/9TmlSu" 9:00 a.m. EDT, Oct. 15, 2010 from MarketWatch
"U.S. stocks open higher Friday, led by 1% rally in Nasdaq Composite http://on.mktw.net/dvRI5q" 8:40 a.m. EDT, Oct. 15, 2010 from MarketWatch
"No increase in benefits planned for Social Security recipients in 2011, government says http://on.mktw.net/bmZiO4" 8:08 a.m. EDT, Oct. 15, 2010 from MarketWatch
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